TEN FINANCIAL STRATEGIES TO SUCCEED IN DENTISTRY

HALF OF DENTISTS SAY PATIENTS ARE HIGH AT DENTAL APPOINTMENTS

As dentists we are blessed with having a great profession. There is no other career I know of where you can be your own boss, work in the manner that you choose and create a great life for your family.

Dentists also have an opportunity to earn a tremendous amount of money by working as hard as they choose. Over the course of an average 35-year career, a dentist can easily collect over $30,000,000 in his or her office. Many dentists will do far more than this.

A dentist can also easily average $250,000 - $350,000 in take home pay yearly. Why is it then that only about 10% of dentists can afford to retire and stay at the same standard of living? It’s not that we don’t make enough money. As the saying goes, we don’t plan to fail. We just fail to plan.

In this article, I will share 10 financial strategies to help dentists reach their goals. By using these proven, highly effective strategies, we can move confidently towards becoming financially independent.

1. Develop a Written Financial Action Plan. Create this plan as early as possible and don’t stop. Having a written plan that spells out exactly what you will accomplish and how you will do it, greatly increases the chances of success. Keep the plan in various places where you can easily see it every day. By constantly reminding yourself of your objectives, success comes more easily. If you need help in creating a plan, work with a financial professional. It will be money well spent.

2. Live Below Your Means

Human nature causes us to try to live at or above our means. When we first start our careers, we have to be more frugal with our spending. We typically aren’t making as much money, so we don’t get into as much trouble. As we earn more, we justify the increased spending by saying we deserve it. There is always a tug of war between our current desires and our future needs. Most of the time, the current desires win. One way to help prevent this is to visualize your future self. What will your financial situation be like in 15-20 years, if you keep doing what you are now? In the fourth strategy, I will show how dentists can provide for their future without sacrificing the present.

3. Maximize the Collections in Your Dental Practice

By working at an increased level, you create more production and collections. Most dentists are working close to half their possible capacity. The problem is we don’t usually know how to fix our issues. Some type of change is needed. This change could be in your facility, your staff, your skills, or even in yourself. Many times, in a dentist’s career, they will reach a point where the practice hits a plateau. The dentist feels like they are working as hard has they can, in their current office, with the staff they have and the systems in place.

It feels like they have hit a wall. Usually, a fundamental change is needed. Typically, the dentist will need help making these changes. Consultants that help with practice management issues are not inexpensive. They are however, worth every penny if they can facilitate the needed change.

4. Invest Automatically

This is a key to becoming wealthy. Your financial life should run on systems, just like you dental practice. By scheduling saving and investing to occur automatically every month, you are accomplishing many great objectives. First, the money goes directly from your business account to your investments. It doesn’t get sent home where it will be spent. The prescribed funds go automatically into the investments every month. By doing this, you are dollar cost averaging into the market. When the market is down, you are buying in more shares with the money. When the market is up, you are buying less shares with the same amount of money. By using this principle, you are being smart without having to try. By saving and investing automatically over the years, you will create wealth. The money will arrive exactly where it should be, and you won’t ever miss it.

5. Always Have Your Money Working

As dentists, we work hard for our money. It should work as hard for us. No one can effectively time the market. In order to do so, one must be right twice. Once when you take the money out of the market and then again when you put the money back in. This is impossible. However, by developing a sound investment strategy and a good long term plan, and by keeping your money invested, you can benefit from good markets and rebounds in bad markets. Studies show us that the best days in the market usually occur right after the worst days. By keeping your money invested, you won’t be tempted to pull the funds out at the worst time. Most dentists tend to hoard cash in their business accounts, all the while earning next to nothing from their bank. While it is prudent to keep an emergency amount of cash on hand to take care of any unforeseen events, most dentists have way too much cash on hand. They never realize the lost opportunity of having that money working for them. With inflation running high, money in the bank could be losing up to 8-9% in spending power.

6. Rebalance Your Portfolio Quarterly or Yearly

This is how the principle works. For example, initially your investment portfolio is created with 60% stocks and 40% bonds asset mix, based on your particular risk tolerance. Then, over the course of a year, if the stocks do well, but the end of the year your portfolio would look like 70% stocks and 30% bonds. In order to rebalance to your original asset allocation model, you would sell some stocks that have appreciated and buy some bonds that are lower. By doing this, you are returning to your original 60/40 model. More importantly, you are selling high and buying low which is the smart way to invest. Having your portfolio rebalanced automatically ensures it will happen.

7. Reduce Your Taxes Constantly

The effect that taxes have on the ability to build wealth is enormous. By regulating participating in pretax retirement plans in your dental practice one can save a tremendous amount on taxes. Money is saved pre-tax and grows tax deferred within the plan. Retirement plans come in many types and sizes. Examples can include 401K plans, SIMPLE plans, and SEPs. Consult with a financial professional to help evaluate which plan is right for your dental practice. Also, knowing which type of investments to hold in various types of accounts is important. For example, in non-qualified accounts where you are taxed yearly on any gains it is vital to hold appropriate investments. Possibilities could include municipal bonds that give fed tax free income, growth stocks that you want to hold for a long time and dividend producing stocks. Furthermore, working with a dental specific Certified Public Accountant (CPA) is very important. The CPA can help you save on taxes every year. One of the biggest tax issues that can occur is when a dental practice is sold. It is extremely important to structure the sale properly. This is very complicated topic which should be dealt with in another article.

8. Working with A Financial Professional to Help You Optimize Your Outcome

Studies show that people who work with a financial advisor can potentially improve up to 2-3% better annually in investment performance over those who don’t. Sometimes getting advice when facing various financial and business issues can help dentist avoid mistakes. Find an advisor who has knowledge and experience with dental practices. By sharing ideas and befitting from experience, you can shorten the learning curve significantly.

9. Reverts to Strategy 1, Review and Adjust Your Financial Action Plan Periodically

Even a well thought out plan need evaluation and adjustments occasionally. Time, changing issues in dental practices and circumstances of life will dictate periodic adjustments. As the saying goes, most plans don’t survive first boots on the ground. Communication and flexibility help you to continue to benefit from the plan and move towards the ultimate goal of financial independence.

10. Maintain Your Focus on Your Long-Range Goals

We are bombarded everyday with news, noise in the media and meaningless babble. Markets will go up and down, but the prudent dentist knows to filter out most of the daily noise. Over time, a well thought out and followed plan increases the chances of success. The daily rantings and raving of media announcers and daily market moves don’t mean much in the long term.

Keep your focus on what’s important in your life. Your family, faith, long term goals and your dental practice should be the focus. By maintaining this focus, you move confidently in the direction of your dreams.

Dr James Pitt II